Saturday, 31 March 2012

Worth an arm and a leg...

or so the expression for valuing something really highly goes. Many economists apply it to top publications - AER, QJE, Emetrica, JPE, RES. And finally, someone actually investigated willingness to pay for a "top 5". Here is the study. Three scholars in the Netherlands conducted a survey amongst economists, and found that they valued the AER higher than all other journals. Willingness to pay on average was $12,000 (and nearly $10,000 for a QJE). The same people also were asked how much of their life expectancy they would sacrifice for a publication. For the AER, that's 0.77 years; for the QJE, 0.55. This is close to the values for how much lifetime people are willing to give up to keep their right thumb (1 year). Note, however, that these are the average responses; medians are much lower, which implies that a handful of (presumably desperate) characters are skewing the results big-time.

Covering the globe - applicants from 40 countries

A month ago, I showed a little map of the world where our applicants come from. It turned out to be by far the most popular post of the last month, so here is the this month's update. We had students interested in studying with us from 26 countries at the beginning of the month. Now, we have applicants from 40. The US is the single biggest source of applications, followed by Italy, Germany, Canada, Spain, and India. At the same time, there are also some surprising white spots on the map -- we have no Russian, South African, UK, or Brazilian applicants as of yet. Nonetheless, as you can see, we are doing pretty well covering the globe... the range and quality of candidates is nothing short of astonishing, if I may say so (having been involved with applications to ITFD since 2007).

Friday, 30 March 2012

ITFD => Harvard

Congratulations to Edoardo Campanella (ITFD 2009/10), who just won admission to the Kennedy School of Government at Harvard University. After the year in Barcelona, Edoardo went off to work, first for the WTO in Geneva, then as an economic advisor for the Italian Senate after graduating with a Master's degree from ITFD. He has also been a prolific commentator and writer on economic issues.  The MPA he is now going for is one of the most competitive and prestigious postgraduate programs in the world, designed for people who want to work in the highest levels of public administration. For example, the German government sends a handful of the best graduates from the German National Honors Foundation to this program through the McCloy program every year. 

Thursday, 29 March 2012

Sex and the Banker - Aristophanes edition

In Aristophanes' Lystrata, the women end a war by withholding sexual favors. High-end Spanish hookers are now using the same idea, exploiting bankers' libido as a pressure point to get the economy moving again. According to news reports, the assocation of luxury sex workers has decided that its members should not offer services to bankers until the country's financial institutions start making loans to families and small- and medium-sized companies... let's see if it works better than quantitative easing.

Going... going...

In previous years, we had a deadline of March 31 for applications. We decided to be a bit more flexible this year, but the truth is that scholarships are assigned competitively... and once they are gone, they are gone. The same ultimately goes for slots - we don't want the class to be too big. The ITFD class for next year is taking shape quickly, with confirmations running higher than in any year so far at this time of the year, and I think it will be an exceptional experience to study in the program in 2012-13. Why? Remember what professors don't really want to admit typically - the quality of one's peers probably matters as much as the curriculum and teaching staff. Based on confirmations so far, I am confident that next year, we will an amazingly talented and diverse student body. Actually, there is a part of me that wishes I could be a student here...

Blanchard and Delong on the Greek endgame - and implications for Spain and the future of the Euro

After the crisis is before the crisis... Olivier Blanchard (via Brad Delong) has some simple home truths for those who think that Greece has now been "rescued" by cutting its privately-held debt by ~80%, a uniquely savage restructuring for any country except Ecuador and Argentina -- what great company for the Eurozone. It's really a gentle reminder that Merkel, Schäuble, and the rest of the German "Austerity Will Solve Everything" Muppet Show just failed Econ 101. The real underlying issue, as Blanchard points out, is the continued current account deficit - still 10% of GDP. Olivier points out that leaving the Eurozone would give Greece a chance to finally increase competitiveness, but with his IMF hat, seemingly rules this out as impractical. Brad Delong, probably remembering the experience of leaving the gold standard in the 1930s, strikes a different balance -- with quitting the Eurozone looking much better. And everything that we say about Greece also applies to Spain. Here is why "internal devaluation" (ie savage wage cuts), the only alternative route to make countries competitive, will never work in the Club Med:

  • strong unions combined with an inclination to strike and raise hell. That will damage growth directly
  • high private debt burdens. The average Spanish family carries so much debt thanks to consumer + mortgage lending that even a 10% wage cut translates into a 30% fall in disposable household income
  • small export sector -- after years of post-industrial growth, there isn't enough of a manufacturing sector left that could benefit from a major increase in competitiveness
So, overall, I think Brad is right - for many countries in the South of Europe, the costs of staying in the Eurozone far outweigh the benefits. Responsible governments should prepare for the day after.

Unrest and Bond Yields

via Euronews
Trouble is - if a country descends into anarchy, the best plans for reform don't help you much. The bond market today definitely got worried, with Spanish 10-year yields pushing towards 5.5%. Not everything the markets do is rational (remember those rallies in Greek bond prices after each summit?), but this reaction has some good analysis behind it. Woo (1983) for example showed that countries with greater frequencies of strikes and other forms of unrest have bigger public debts -- a clear sign of an inability to cut expenditure and raise revenue in societies at the verge of fracturing. You can see how this kind of reaction can lead to a self-reinforcing downward spiral, with uncertainty undermining growth (a la Bloom), lower growth causing lower taxes and bigger deficits, resulting in more austerity (reinforced by some extra finger-wagging from Brussels and Berlin), and then you get round again with some more unrest plus so much less growth that the deficit actually goes up (as per the new and instant classic Delong + Summers paper). The final result? Greece. I don't think the probability of Spain ending up there is high, but give us half a dozen incidents like today, and the chances will go from, say, 5% to 25%.

Friday, 2 March 2012

Applicants from 26 countries already...

It's that time of the year, when applications are rolling in and we are allocating slots for the ITFD class of 2012-13. So far, we have applicants from 26 countries (by February), and slots are going fast. Here is a fun little map that shows where they all come from:

ITFD applicants map


Thursday, 1 March 2012

One Monster Slain

“Writing a book is an adventure. To begin with, it is a toy and an amusement; then it becomes a mistress, and then it becomes a master, and then a tyrant. The last phase is that just as you are about to be reconciled to your servitude, you kill the monster, and fling him out to the public.”
- Winston Churchill

Peter Temin and I have just flung our monster into the waiting arms of Oxford University Press -- the manuscript of our book Prometheus Shackled: Goldsmith Banks and England's Financial Revolution after 1700. We even made it by the contractual deadline, which cannot be that common for an academic book. After a great book conference in Yale in October last year (generously funded by an anonymous donor, approached through the good offices of Will Goetzmann at the IFC at Yale School of Management), we revised things thoroughly. As they say, your friends stab you in the front... 

What's the argument? That growth in England during the Industrial Revolution was "slow" (as established by a generation's worth of research) in part because private financial intermediation didn't work very well. We look at data from goldsmith banks to show how dysfunctional bank lending was in channeling money towards productive uses. Why was it thus? Why did the "financial revolution" after 1688 lead to cheaper public credit, but less private intermediation? Because of financial repression, is our argument - the government stepped in and made it hard for banks to do their job. Usury laws limited interest rates and skewed lending decisions towards established borrowers; the Bubble Act made incorporation impossible so that no new companies could be founded; and the six-partner rule kept English banks too small to be of much use. On top of that, there was massive "crowding out" as a result of many wars after 1700. A look at the American mirror - where all these restrictions quickly disappeared after independence - shows how stifling English financial regulation was. You can read an earlier draft here scribd) and here (pageflip view).